April 2 (Bloomberg) -- UBS AG may receive full immunity
from European Union currency-rigging fines after it was the
first to approach antitrust regulators in the probe, sparking
criticism that the bank has received enough forgiveness.

UBS, which avoided a 2.5 billion-euro ($3.45 billion)
penalty in the EU’s probe into manipulation of the yen London
interbank offered rate last year, was again first to cooperate
in the currency investigation, according to a person with
knowledge of the case, who declined to be identified because the
process is confidential.

“To get off scot-free, I think, is not the right message
to send,” Arlene McCarthy, the lawmaker who led the EU’s work
on creating criminal sanctions for bankers who rig benchmarks,
said in an interview. “I’m not in favor of the confessional
approach not attracting any fines or sanctions.”

Authorities on three continents are investigating whether
traders at some of the world’s largest banks sought to
manipulate the WM/Reuters currency rates by working with dealers
at other firms and timing trades to influence benchmarks and
maximize profits. UBS, the largest Swiss bank, has suspended at
least five foreign-exchange traders as part of its own probe.

Full Immunity

Richard Morton, a spokesman for Zurich-based UBS, declined
to comment on immunity in the FX probe. Antoine Colombani, a
spokesman for Competition Commissioner Joaquin Almunia, declined
to comment on the EU’s preliminary investigation.

A decision on whether the bank will receive full immunity
won’t be made until the end of the investigation after
regulators review the level of cooperation. EU leniency wouldn’t
enable UBS to escape fines from the U.K. Financial Conduct
Authority or some of the U.S. authorities that don’t grant
immunity.

The EU’s current reliance on its leniency program to
uncover cartels is “rather disappointing,” said Andreas
Schwab, the lawmaker leading the European Parliament’s work to
encourage lawsuits over price-fixing. The EU’s competition arm
should have more staff to put it in a position to initiate its
own probes with no immunity granted, he said.

“While immunity applicants might be spared fines, they can
still be held to pay damages to injured parties,” Schwab said.

Not Eligible

UBS and Barclays Plc avoided a total 3.2 billion euros in
penalties from the EU after self-reporting manipulation of Libor
and Euribor. The EU levied a record fine of 1.7 billion euros
against six other finance firms in December for colluding to rig
the rate.

Only companies that “took steps to coerce” other firms to
join a cartel or to remain in it are “not eligible for immunity
from fines,” according to EU rules. Such companies can still
obtain reductions from antitrust penalties.

The EU’s program is “too lenient, quite clearly,”
McCarthy said. The “gravity and seriousness” of these
infringements “shouldn’t qualify them for no fine,” she said.

Amnesty does have supporters. Many economists still think
that letting repeat offenders avoid antitrust fines by exposing
misbehavior is “the optimal thing to do,” as long as sanctions
are “sufficiently robust” for other participants, said
Giancarlo Spagnolo, an economics professor at the University of
Rome Tor Vergata and Stockholm School of Economics.

“The objective of the leniency program is to destabilize
the cartel,” he said. “So if UBS wasn’t eligible for leniency
it might not have run to the commission” and the cartel might
never have been stopped.

‘The Mafia’

UBS opened a review of its operations in the $5.3 trillion-a-day currency market last year. Traders at some banks exchanged
information on instant-message groups with names such as “The
Cartel,” “The Bandits’ Club,” “One Team, One Dream” and
“The Mafia.”

At least two dozen traders have been fired, suspended or
put on leave by lenders including Citigroup Inc., Royal Bank of
Scotland Group Plc and Barclays Plc.

The Swiss Competition Commission opened an investigation
earlier this week into UBS, Credit Suisse Group AG and six more
firms over “indications that these banks made agreements to
manipulate currency rates.” JPMorgan Chase & Co., Citigroup,
Barclays, RBS, Zuercher Kantonalbank and Julius Baer Group Ltd.
are also being probed, the Bern-based watchdog said.

The Swiss Financial Market Supervisory Authority, known as
Finma, last year ordered UBS to add 28 billion Swiss francs
($31.6 billion) to its assets, weighted for risk, because of the
operational risk posed by litigation and investigations. It was
lowered to 22.5 billion francs by the time its year-end results
were published.

Pretax Loss

Christopher Wheeler, a London-based analyst at Mediobanca
SpA, estimates that the Swiss finance regulator’s requirement
implies a pretax loss of around 2.9 billion Swiss francs, under
the bank’s targets for common equity.

“Finma is giving you a clue on the scale of the risk,”
Wheeler said. “The market assumes the biggest risk lies in the
forex investigation.”

Offering immunity to companies that are first to bring
collusion to light is the “main and most effective tool to
detect illegal cartels,” the EU antitrust regulator said when
its Libor and Euribor fines were published in December.

In all of the cartel fines levied in the last five years,
not a single probe was begun by the European Commission without
the help of a company self-reporting.

“While it may be that cartels would be very difficult to
detect without these rules, there must be a limit to leniency,”
said Kenneth Haar, a researcher at the Corporate Europe
Observatory, a Brussels-based public-interest group. “The
danger here is that banks start to speculate in the rules. That
they happily join cartels in the expectation that they can get
off the hook in the end.”